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Court upholds school district’s transfer of money from working cash fund

The Illinois Appellate Court recently upheld a lower court’s decision to strike down challenges to a school district’s use of its working cash fund. This case builds upon a recent amendment to the Working Cash Fund Article of the School Code, P.A. 96-1277 (summarized in a July 28, 2010 FR Alert), which allows school districts to transfer money from their working cash funds to any operating fund of the district found to be most in need. In Lutkauskas v. Ricker, the district court struck down a consolidated claim against working cash fund transfers by Lemont Bromberek School District No. 113A because Plaintiffs lacked standing and failed to assert any damages based on their claim.

Plaintiffs alleged that the district employees and board members violated Section 20-5 of the School Code when they engaged in a pattern of spending money from the district’s working cash fund without a school board resolution approving the transfer of funds. Specifically, Plaintiffs alleged that from 2007-2010, Defendants spent excess amounts in several individual funds and drew from the working cash fund, rather than reimbursing it. For relief, Plaintiffs argued that Defendants should pay a fine of $10,000 each, forfeit their offices, and repay the amount that was depleted from the working cash fund. The circuit court granted the School District’s motion to dismiss holding that Plaintiffs’ complaint failed to state a claim and that the Defendants had legislative immunity. The Circuit Court noted that “Plaintiffs are arguing a windfall and nothing in the complaint would tell the reader that money was used for some purpose other than for school purposes.”

The First District Appellate Court affirmed the trial court’s dismissal of the complaint. In doing so, the Court found that Plaintiffs failed to allege that the funds were spent for an improper purpose and that Plaintiffs could not show any loss to the district as a result of the alleged actions. The Court also held that Defendants’ actions did not violate the School Code since they properly passed a resolution to abate and abolish the working cash fund after depleting it.

In dissent, Justice Pucinski argued that the Plaintiffs should be allowed to file an amended complaint because there is so little case law on the topic of working cash fund transfers. She found that a plain reading of Section 20-5 detailed that Plaintiffs did have standing to recover civil penalties. Focusing on the strict application of the statute, she believed there was a cause of action because the board failed to vote on a resolution to transfer funds, which is exactly what the statute set out to prohibit.

This case is important because it gives an indication how courts may analyze challenges to working cash fund transfers. The case serves is an example of the Appellate Court focusing on the legitimate purposes for which the funds were spent rather than whether the school district followed technical procedures in transferring funds.

Compare jurisdictions:Litigation: Enforcement of Foreign Judgments

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